how does trustee get money back from insider payments?

[frustrated7]

My parents loaned us money last fall to pay our property taxes so we wouldn't pay late. We then paid them back with a pension distribution check I received in December. We know now that is considered an insider payment and it is likely the trustee will try to recover that money. Does anyone know how the trustee goes about getting that money from them? Will they be sued to return the money or will the trustee send them a letter demanding they give it up. The amount borrowed and repaid was $2,000. I know if we had the money we could give it to the trustee to stop them from going after my parents, but we simply don't have it. Even if they go back and take it from my parents, we will pay them the amount back again once this is over. Does anyone know the process for this? Thanks.

[AngelinaCatHub]

Yes the Court can sue your parents to recover. Paying your parents is a preferential payment and an insider payment.

Here is what happened to me. After my 2004 hearing with my Trustees attorney, we came to an agreement that I would pay this back after a six month wait. I paid it back so I paid my loan twice. Back to my god-daughter and then to the Court.

I was also an asset case and they gave me a year to pay that back. I just finished the last payment.

Now, did your transaction go through any of your paperwork or bank? What did the loan pay? In essence you actually paid those bills. Your parents were simply a buffer. I’m trying REAL HARD to think of any legal way not to expose this action. Please toss this to your lawyer as I don’t see a way without committing fraud. How long between the loan and the payback? How long ago? This could matter. Are you already in bk or going to go for bk. Give more facts as if it were done wrong we did it and learned what NOT to do. ‘Hub

[justbroke]

The Cat's have experienced this directly, so listen to 'Hub! As stated in prior threads, the Trustee almost certainly will try to recover the money.

[frustrated7]

I wasn't sure if the trustee would sue my parents or simply contact them and demand them to pay it back. We will be a no-asset Chapter 7 case, but only once we drop below median, which will probably be next month (fingers crossed).

You can see what happened clearly in our checking account. We received a $2,000 check from my parents, we paid our property taxes (just about $2,000 on the dot), we got a check from my pension (after taxes it was about $2050), we wrote a check to my parents for $2,000. All this took place in the course of about two and a half months. Had they not loaned us the money, we would have waited until December to pay our property taxes, so it isn't like we would have made a payment to anyone else! They were just trying to be nice and help us out and this is how they are going to get repaid.

My attorney has some fancy mumbo-jumbo he is going to use to say that the loan they gave us was always understood to be just until we got our pension distribution and that we would have used the amount to pay our property taxes, so no creditor was cheated by us doing this. He also is going to argue that we have enough in exemptions left over that had we not paid my parents back we would have been able to keep that money in cash and it would have been exempt. He was writing really technically, copying out of a section in a BK code book. He thinks it might work, but we should be mentally prepared for if it does not. His fellow attorneys think the trustee will go after that money no matter what.

The thing is, we don't have enough money to pay yet another $2,000 to the trustee, because then we won't be able to pay our property taxes coming up this summer. Will they automatically sue my parents or will they just start by telling my parents they have to have that money back? What happens if my parents don't still have that money?

I'm just trying to figure out what might happen so that I can give my parents a heads-up. The last thing I want is some surprise out of nowhere.